Did Mario Draghi just defeat populism?
2016 was politically a bit of an annus horribilis in the Western world with Brexit and the election of Donald Trump, and there were a lot of fears in the financial markets about how bad 2017 could become politically in Europe. So far, however, things have turned out a lot better than feared.
Geert Wilders really didn’t succeed in the Netherlands; in France the reformist candidate Emmanuel Macron has been elected president, and in Germany it looks like Chancellor Merkel’s CDU will continue to hold on to power after the Bundestag elections later this year.
So all in all, it looks like populism is losing out to the establishment – or more precisely, to moderately reformist centre-right parties across Europe. This is an outcome which investors clearly welcome as preferable to the prospect of potentially disorderly rule by extremists and populists of the right and left.
But why have we seen this establishment comeback? Why are the populists no longer winning? One obvious answer is that voters are not crazy and understand what is at stake. In this sense, Brexit and President Trump’s election just scared them back into the mainstream.
A more fundamental answer is that the establishment parties are doing better because Europe’s economies are doing better. They are certainly not booming, but over the past year even the hardest-hit economies have seen stronger growth. Just look at Greece, where in recent months we have seen some real signs of recovery.
Populists don’t do well in growing economies, and Europe is getting back to growth. In my view, this to a very large extent is the result of European Central Bank President Mario Draghi’s push for quantitative easing in early 2015. Ever since, the European economy has been picking up speed. With a certain time lag, voters have felt this in the form of higher incomes and more job security. And when that happens, all of a sudden Marine Le Pen or Mr. Wilders no longer look like attractive alternatives.
Nearly 170 years ago, the British economist John Stuart Mill said that if the “monetary machinery” runs smoothly, nobody notices and the economy thrives. Over the past two years, the Eurozone’s monetary machinery has worked. In consequence, the economy is recovering and suddenly the “political machinery” is also getting back in gear.
It appears that we have the cautionary tales of Trump and Brexit and the ECB’s “monetary machine” to thank for rolling back the populist wave. That is the real reason why France’s president today is Emmanuel Macron. It doesn’t mean everything is great, but at least Europe seems to have stepped back from a 1930s scenario. Thank God – and Mario Draghi – for that.